The employer employee insurance policy is taken by the employer on the life of his employees. It is not only an insurance product but an arrangement. The basis of this arrangement is that the employer has an insurable interest in his employees.

This insurance policy acts as an encouragement for the employee to continue with his employer. An employer spends a considerable amount of time and money to hire and retain an employee. Upon their exit, an employer may lose some trained personnel. An employer employee insurance policy helps the employees to trust the employer in a better way.

Where is the employer employee insurance applicable?

This group insurance policy is applicable when there is a relationship maintained between an employer and his employee as the employee earns the salary for his service provided to the employer.

  • Sole proprietorship: Where the employee works (apart from the proprietor).
  • Partnership firms: Employees of the partnership firm other than the partner himself.
  • Corporate employees
  • Legal entity

Any of the above-stated employers with a minimum of 5 employees can buy this scheme. Employees who are on the payroll of the company can avail the benefit of the employer employee insurance policy.

Benefits of the policy to the employer:

  • This group insurance policy helps the employer to gain the loyalty of his employees.
  • It helps to minimize the employee attrition rate.
  • Helps the employer to enjoy tax rebates on the premium paid.
  • It acts as an attractive option to retain the talented employees.

Benefits of the policy to the employees:

  • This group insurance provides security to the employees against illness, accident/disablement, and premature death.
  • In the event of an unfortunate death of the employee, his family receives the claim, which works as an alternate source of income for them.
  • The employee gets the benefits which are tax-free.
  • Employees gets the benefit of this cover without paying for the same.

Tax benefits of the employer employee insurance:

In this type of insurance schemes, the employer pays the premium for the scheme. A filled and signed assignment form in the name of the employee is submitted to the insurers by the employer. Each employee completes his standard proposal form. The premium paid by the employer is considered as perquisites in the hands of the employee, and hence the employee can claim tax rebate under the income tax act. The premium paid is considered as the business expense and is hence exempt from tax.

Case Study:

‘Illuminations Ltd’ was an IT firm located in Mumbai and was into the business of providing cloud based services and other software solutions to the clients. The company was initiated in the year 2002 and had a total of 67 employees.

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Majority of the clients of the company were based in Los Angeles and Seattle. To cater the demands of the clients, the firm had a solid base of talented people in different departments. To cement this relationship between its employee, the company had taken an employer employee group insurance policy.

This policy taken by Illuminations Ltd was ideal to reinforce its bond with the employees. The policy had the following characteristics:

  • It was a renewable term insurance plan.
  • It provided a cost-effective life cover for all categories of employees.
  • The insurers offered a master policy, which served as an insurance cover for the group, for a minimum of 25 members.
  • The policy could be customized to meet the needs of the group.
  • This employer employee group insurance policy was a cost-effective method of offering a very high-risk cover, without any upper limit.

This policy helped the company to get the tax benefits as well as to reduce the attrition rate.